Mineral rights, in a nutshell, are the rights to oil and gas beneath the surface. They can be subdivided, delegated, or even sold entirely. And whoever owns them has the right to produce the oil and gas beneath the surface.
Surface Rights vs. Mineral Rights
In the United States, oil and gas beneath the surface of a property is privately owned. With rare exceptions usually dealing state-owned land, the sub-surface oil and gas, or the “mineral estate,” was originally owned by same person who owned the surface rights, or the “surface estate.” But over the past century and a half of commercial oil and gas development, landowners would frequently “sever” the mineral estate from the surface state, and convey each estate separately. Thus today is is not only possible but in many areas very likely that the person who owns the surface does not own the minerals and vice versa.
In every state except Louisiana, these two estates are legally treated as two separate properties, each with different rights associated with each. (In Louisiana, they’re functionally treated as two separate properties, but the mineral estate reverts to the owner of the surface state if and when production ceases on mineral estate).
So how does that work in practice? In this context the “mineral estate” has the the right to extract oil and gas from beneath a property, using as much of the surface estate as reasonably necessary to do so. Put differently, the mineral estate has the right to access the minerals. These “mineral rights” can be delegated to others (as in the case of leasing), split (as in the case of various royalty interests), or even resold to others (in part or in whole). But in essence, “mineral rights” are the right to access the sub-surface oil and gas, using as much of the surface as necessary to do so.
Mineral Rights vs. Royalty Interests
Mineral rights are the rights to develop the mineral estate, and specifically include:
- The right to produce and develop the minerals (using as much of the surface as reasonably necessary to do so);
- The right to delegate those rights to others by executing a lease, called the executive rights;
- A right to receive lease bonuses, shut-in payments, delay rentals, and other payments related to the executive rights;
- The right to receive a share of production (usually in the form of royalties); and
- The right to transfer some or all of the above rights to others.
A “royalty interest,” by contrast, is a right to receive a share of the production (#4). Unlike the mineral rights owner, the royalty interest owner cannot produce or develop the minerals themselves, they cannot execute leases or otherwise delegate the rights, and can only transfer what they own (part or all of the royalty interest). They also do not receive other non-royalty payments such as lease bonuses or shut-in rentals.
In practice, however, many people use the two terms interchangeably.